Acca aaa s21 Notes

September 2021 to June 2022 exams
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The auditor can obtain the required understanding and audit evidence through:
๏
A contract or service agreement between the audit client and service organisation.
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User manuals and/or technical manuals.
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Reports by the service organisation (eg internal auditor’s reports).
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Reports by the service auditor (such as letters highlighting internal control weaknesses).
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Knowledge derived from previous dealing with the service organisation (eg was it reliable in the 
past).
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Comparing data submitted to the service company to information and data received back.
If the above sources of information available from the client are not sufficient, the auditor may, for 
example:
๏
Obtain and assess a Type 1 or Type 2 Report (see below).
๏
Ask the service organisation for information.
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Visit (with permission) the service organisation and carry out audit procedures there.
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Use (with permission) another auditor to cary out audit procedures at the service organisation. 
ISA 402 
Audit Considerations Relating to an Entity Using a Service Organisation
, describes two types of 
report:
๏
A 
Type 1
report comprises: 
A description, prepared by the management of the service organisation about the service 
company’s control objectives and related controls that have been implemented.
A report prepared by the service auditor giving reasonable assurance on the suitability of the 
service company’s systems and control objectives.
๏
A 
Type 2
report comprises:
A description, prepared by the management of the service organisation about the service 
company’s control objectives and related controls that have been implemented and sometimes 
a description of their operating effectiveness.
A report prepared by the service auditor giving reasonable assurance on the suitability of the 
service company’s systems and control objectives, 
the effectiveness of the controls and a 
description of the service auditor’s tests of the controls and the results of those tests
So only a Type 2 report provides assurance on the effectiveness of the service organisation's controls.
The auditor can also ask management about problems and irregularities in the service company’s 
work.
If the auditor cannot obtain sufficient appropriate evidence about the quality and reliability of the 
processing being carried on by the service organisation, then the audit opinion will have to be 
modified.